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Crunching the Numbers on Time to Rewards Program ROI

Crunching the Numbers on Time to Rewards Program ROI

“Hey, so how long will it take for my customers to actually begin using their points / sending their referral link to friends / signing up for my mailing list?!”

When merchants come to us asking about rewards program ROI, we completely understand; after investing the time and energy to customize and launch their rewards and/or referral programs, it’s only natural to hope for an immediate response in return. In addition, while the release of our Program Dashboard is insightful, it can also exacerbate the issue when the numbers don't increase as rapidly as hoped right away.

What we advise all of our merchants, however, is that the various programs on our platform are an exercise in patience. While they may take a month or two to begin paying off, our data suggests that they're well worth the wait!

Sometimes, it helps to explain why rewards programs take a bit of time to begin paying off with an example. Let’s say that you’re a clothing retailer, and on average, your customers make a purchase every two months. Right after launching the program, many of your customers will have very few points – if they have any at all. Not a lot of activity is going to take place right away.

When it comes time to make that purchase a couple of months later though, the customer might take more notice of the points they’re accumulating as part of their purchase, perhaps because they’ve earned enough points for a coupon towards their next purchase. And a month after that, when they get a reminder from Swell that they have enough points for a discount, they'll perhaps come back and make their third purchase.

What’s the Moral of the Story?

The example above is precisely what a rewards program is intended to accomplish. Not only did the customer come back and make their third purchase (whereas they might have otherwise shopped elsewhere), but they did so faster than they typically do.

While nobody would argue that the example wasn't a success, that "ideal" process still took three months from the launch of the program! And that’s with an average repeat purchase cycle of two months as well.

This brings us to one of the core principles that we advise our clients about when we help them launch their programs:

In general, we find that it takes 2 – 3 months to begin seeing significant participation in your rewards program, and that amount of time can shorten or lengthen depending on how often customers come back to your store on average.

What About Referral Programs?

The story is similar with referral programs as well; the more customers are exposed to your referral program, the more likely they are to participate in it. In marketing class, they’d call this concept “impressions” – it typically takes a few impressions before somebody takes action, whether that action is buying your product or sharing their referral link with friends and family!

What Does that Actually Mean for My Rewards Program ROI?

We’ve seen this same story play out repeatedly, and so we’ve always been confident that our hypothesis was accurate. In particular, in studying merchants here are there who have been with Swell for a number of months, we were extremely encouraged by the fact that most were earning a significant ROI (return on investment) from the program.

That being said, we’re strong believers that examining a full data set is far more insightful than relaying anecdotes. After all, it’s one thing to say “We peeked at a couple of our merchants' dashboards, and they're doing great!” and quite another to say “Across thousands of merchants, rewards program ROI is consistently strong for the average merchant”.

When we released our Program Dashboard a few weeks ago, we were excited at the level of reporting and insights we were putting at the fingertips of our merchants. But internally, we were also pretty excited at the project we knew would come about immediately after: for the first time, we were going to be able to measure rewards program ROI at a level which we simply hadn’t been able to yet.

What Did the Data Show?

To answer the question of “How long does it take for merchants to earn a return from Swell?”, we looked at average ROI for our merchants based on how many months they had been using our platform. For the purposes of our analysis, ROI was defined as “Value Generated from Swell / Total Investment in Swell”. Remember, “Total Investment” includes both Swell fees and any discounts given as part of your Swell-managed programs!

Our data analysis confirmed our hypotheses – and then some! Here are a couple of the more interesting findings:

In Month 1, the average Swell merchant earns a 6.4x ROI. This was a surprisingly positive result! As with many investments, we had assumed that ROI in Month 1 would be negative for most of our merchants as their customers learned about their rewards and referral programs, and then gradually begin to turn positive by Month 3 or so.

Intrigued by the Month 1 ROI, we dove in a bit deeper to understand where returns were being driven from as merchants began using our platform. Unsurprisingly, we discovered that the Newsletter Signup tool was driving 56% of Value Generated for merchants actively using it.

In other words, while the rewards and referral programs may typically take a bit longer to begin generating value, it was a pleasant surprise to find that the Newsletter Signup tool can begin paying immediate dividends (and therefore play a major role in generating a positive return right away)!

ROI steadily increases in Months 2 and 3 on average, and by Month 4, the average Swell merchants earns a 9.2x ROI. As we suspected, the longer a merchant uses the program, the more it pays off. In a relatively short time period, it was encouraging to see that ROI increases by nearly 50% on average.

What Does This Mean for My Program?

If you take one idea away from this post, we hope it's that it takes time for many of Swell’s tools to truly begin gaining traction; as customers are exposed again and again to the Swell programs which you choose to implement, participation will increase, and the numbers prove that our average merchant will make far more from our platform than they’ll pay us in fees. And that’s exactly what we like to see :)

This is in stark contrast to other tools available to merchants which are also intended to drive traffic and sales. For example, Facebook ads typically have immediate impact -- a customer can click on an ad and make a purchase just a few minutes after you begin. While those are certainly valuable, Swell's tools are designed to have a longer-lasting, sustainable impact, all at a cost that's relatively lower than consistently acquiring new customers via paid marketing (e.g. Facebook ads or Google AdWords).

That being said, we’re not suggesting that there’s nothing that can be done to positively influence your rewards program ROI in the first few months that you use Swell!

In particular, we have two recommendations to drive returns for merchants who are just getting started with the platform:

Promote Your Program(s)

Time and time again, we’ve seen that the merchants who promote their programs heavily begin realizing value faster than their counterparts.

In a previous post, we went into detail as to how you can promote your rewards and referral programs to your existing customer base. To recap briefly though, some combination of a dedicated page, highly-visible links, and relatively frequent emails (especially in the weeks following launch) have significant impact on success, especially at the beginning!

Try the Newsletter Signup Tool

After all that number-crunching, one of our more interesting discoveries is just how quickly the Newsletter Signup tool begins paying off for merchants who are actively utilizing it; each new email that you capture through the tool has a chance of clicking through the next promotion you send out and making a purchase.

If you’re eager to begin seeing results from Swell, we would encourage you to consider trying out the Newsletter Signup tool while you wait for the other platform components to build up some steam!

We’re looking forward to hearing more about your results as you get started with the program. If you have individual success stories to share with us, or more questions about our stats, feel free to get in touch with our team or leave a comment below!

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Swell was founded to help businesses attract, engage, and retain their customers. Our team consists of engineering and marketing experts with a singular focus: to help our merchants achieve their goals.